A complete end-to-end checklist for year-end accounting

Inventory management, payment follow-ups, bad debt handling, fixed asset review, financial report generation, and various reconciliations—with all these tasks and more, the fiscal year-end is undoubtedly a crucial time for businesses. During this time, businesses clean up their books by performing these tasks to ensure compliance with various regulations. Above all, the year-end accounting provides businesses with an opportunity to analyze their current accounting practices and improve upon their operational gaps so they can enter the next financial year with a stronger approach.

Despite their experience, accounting professionals find year-end accounting challenging due to the ever-evolving business landscape. Each year, accounting regulations and standards are either amended or newly introduced to keep pace with emerging business practices and compliance requirements. In India, the recent rationalization of GST rates might pose a significant challenge for businesses in financial reporting.

However, a checklist guide will simplify year-end accounting for businesses and accounting professionals. With this in mind, we have created a comprehensive checklist to guide your businesses toward error-free financial reporting.

Inventory review

• Begin the year-end accounting with a physical count of inventory held by your business. After physical verification, reconcile the counted data with the inventory data in your accounting system to identify discrepancies.

• Then carry out inventory valuation and update your accounting records to reflect any changes in the value of your inventory.

• Please note that the inventory count and valuation should be performed as per the accounting standards AS-2 or IND AS-2, whichever is applicable for your business.

• These steps will ensure that inventory data in your accounting records is up to date and accurate.

Bank reconciliation

• Bank reconciliation is performed to ensure that all transactions relevant to a particular financial year are accurately recorded in your accounting books.

• Gather all your bank statements and reconcile them with the transactions in your accounting system to identify any discrepancies or missing entries.

• During reconciliation, identify items such as unpresented checks, uncleared receipts, bank charges, interest, and auto-debits.

  • These items will be available in bank statements but not recorded in accounting systems or vice versa. Therefore, special attention should be given to them during the bank reconciliation process.

Customer statement generation and payment follow-up

• Prepare customer-wise outstanding statements using the accounts receivable data in your accounting records. These statements should contain details like opening balances, invoices raised, payments received, credit notes issued, TDS deductions, and the current outstanding amount.

• Share the outstanding statements with your customers and verify the accuracy of the customer statements to make sure their record matches yours. After verifying, reach out to customers for any overdue payments to clear them before the financial year's closing.

• After completing customer verification and follow-ups, post all the required adjustments in your accounting system.

Vendor reconciliation

• Collect vendor statements for the entire financial year and verify that the information, such as vendor invoice, debit/credit note, and payments recorded, matches with your accounting records.

• This process helps identify any duplicate entries, missing bills, and incorrect postings in your accounting record.

Bad debt write-off

• Identify the bad debts that can't be recovered from the debtors after reviewing the aged receivables data.

• Approve the write-off and post the accounting entry in your records to move the balances from trade receivables to the bad debt account. Then record this loss as an expense in your P&L account to ensure the profit is not overstated for the year.

Prepaid expenses treatment

• Identify expenses that have been paid in advance but cannot be fully charged to the current financial year. Assume your business had paid rent upfront for two years—Year 1 and Year 2. Despite paying the full amount in Year 1, only the portion related to that year can be recorded as an expense for Year 1; the rest will be carried forward to Year 2.

• After identifying payments of the above nature, record the part of the payment related to the current financial year as an expense and post the rest to the prepaid expenses account (asset) which will be amortized proportionately over the remaining period for which the payment is made.

• This process ensures transactions in accounting systems are recorded as per the accrual principle—which states transactions should be recorded when they occur regardless of when the payment is made.

Provisions management

• Identify expenses and liabilities that were incurred during the current financial year but are not recorded in the accounting books. For example, your business hired a firm to perform the year-end audit, and they issued the invoice for their service in the next financial year. However, the expense has to be recognized in the current financial year. Other common examples include accrued interest, bonus provision, utility bills, and the like.

• Post these items in the accounting record as provisional entries, as they are estimates and not exact figures.

• Reverse these provisional entries at the beginning of the next financial year once the invoice and supporting documents are received.

• This will help your business avoid overstating or understating profit figures.

Fixed assets review

• Review all purchases, sales, and disposals of fixed assets that occurred during the financial year. This ensures only the valid and existing assets are reported in the accounting books.

• Then calculate depreciation for the fixed assets using one of the following methods:

  • Straight-line method

  • Write-down value method

• Once depreciation is calculated, update certain values like accumulated depreciation and remaining useful life in the Fixed Asset Register (FAR).

• These steps result in the accurate valuation of fixed assets in your business records.

GST reconciliation

• Gather the following GST returns before beginning with the reconciliation.

  • GSTR-1: Contains the details of sales (outward supplies) made by the business.

  • GSTR-3B: Contains data on taxable outward/inward supplies, tax liability, and ITC claimed.

  • GSTR-2B: A static, auto-generated statement containing data on ITC based on supplier filings.

  • GSTR-9: The annual GST return—the yearlong data in GSTR-1 and GSTR-3B is consolidated and reported here.

• To begin with, reconcile your sales ledger and invoices with GSTR-1 and then with GSTR-3B to ensure there are no mismatches in sales data between your accounting records and GST returns.

• Then compare GSTR-3B data, such as taxable purchases/sales, tax liability, and ITC claimed, against your internal accounting records to identify any discrepancies among them.

• To make accurate ITC claims, verify that the ITC data reflected on GSTR-2B matches with the ITC claims made via GSTR-3B. This helps identify any missed or excess ITC claims.

• Finally, meticulously compare the GSTR-9 with your accounting records to confirm that internal data perfectly matches the annual return filed.

TDS and TCS reconciliation

• Gather and organize Form 26AS, AIS, TIS, and TDS/TCS certificates (Form 16A/Form 27D). These documents contain details such as tax deducted/collected, deposited, and reported to the Income Tax Department.

• For TDS reconciliation, match the TDS receivable summary in your accounting books with the TDS credits reflected in Form 26AS (and AIS/TIS), and cross-check them with Form 16A to identify any mismatches.

• For TCS reconciliation, compare the TCS data in your accounting books with Form 26AS/AIS/TIS and Form 27D to verify that the TCS is collected and reported accurately.

• This reconciliation ensures error-free tax filing, avoiding penalties from the income tax department.

Financial report preparation

• The most important task for a business during the financial year's end is preparing the financial statements.

• After performing reconciliations and making necessary adjustments in the accounting books, begin preparing a trial balance.

• Post the closing balances of the ledger book in the trial balance to check the arithmetical accuracy of your accounting books.

• Then prepare the balance sheet by mentioning the asset, liability, and capital held by your business on a particular day after closing your books.

• Generate the profit and loss statement by posting all the revenues and the related expenses for the financial year, reflecting the financial performance of your business.

• Create the cash flow statement by tracking all the cash received and paid during the financial year. The statement provides a clear view of your business's liquidity position, which helps handle cash flows effectively in the future.

Transaction locking

• After generating financial statements, restrict professionals from accessing/editing transactions in the accounting system. This is done to prevent any backdated entries once the accounting books are closed.

• Transaction locking ensures your business's accounting books are consistent with your financial statements.

Invoice numbering update

• Make sure to close the invoice numbering sequence for the current financial year and generate a new invoice number series for the upcoming financial year.

• Ensure the invoice number is unique as mandated by GST regulations.

• Update the new invoice number in your accounting system before raising invoices for the new financial year.

Financial year update

• Update the financial year (FY 2024–25 → FY 2025–26) across all invoices, bills, purchase orders, footers, agreements, quotations, and other business documents.

• This is an important year-end activity to ensure your business documents reflect the correct financial year, which helps in audit compliance and effective document tracking.

Data backup

• The final step in your year-end accounting process is to back up all the accounting data after closing your books.

• Back up the financial year accounting data in the cloud, in local storage, and as physical copies if possible. This will help your business secure and maintain the accounting data for future reference, providing immunity against potential data loss.

Conclusion

Any process can be executed efficiently when it is approached with clarity, and the fiscal year-end is no exception. We hope this checklist provided the required clarity for navigating year-end accounting seamlessly. While a structured approach can streamline year-end accounting, using the right accounting software will keep your business ahead of the curve during this crucial time.

Explore Zoho Books—GST-compliant accounting software equipped with powerful features to simplify accounting for your business.